International Management

International Management Phatak, Bhagat, and Kashlak

Chapter 4 The International Legal Environment of Business

Learning Objectives • Integrate the legal environment into the political and economic frameworks developed in previous chapters. • Identify the three levels of law that comprise the international legal system for business. • Discuss the sources and characteristics of international, regional, and national law, and the implications of each for the multinational firm. • Describe the implications of various international treaties concerning intellectual property rights. • Understand the Foreign Corrupt Practices Act and the implications of it on a firm’s global operations.

Chapter Topics • Understanding Laws in the International Context • International Law • International Law and the Risk of Intellectual Property Theft • Laws of Regional Trading Blocs • Laws of Nation States • Host Country-Specific Laws • The Foreign Corrupt Practices Act and Antibribery Provisions • The Convention on Combating Bribery

Fig 4-1: The Legal Environment of International Business International Law Regional Laws Treaties Conventions EU NAFTA National Laws AFTA MERCUSUR United Nations WTO

Basic Characteristics of Law • Law is a norm that prescribes what is assumed to be a proper mode of behavior • Law not only prescribes a certain pattern of behavior, but also requires that the prescribed mode be followed • Law includes a process approved by society for applying coercive sanctions against those who do not obey and therefore perform illegal acts

The Requirements of an Effective Legal System • The people in the society must clearly understand and have knowledge of what the society prescribes as legal behavior • The members of society, the subjects of the legal system, must have agreed that the laws deserve to be obeyed, that is, they must regard the laws as being fair and just • An effective system for punishing illegal behavior must be in place

Functions of Law • Law communicates to individuals in a society their rights and duties in their daily interactions with other people in the society • Law helps in controlling and preventing behavior that the society considers undesirable • Governments use law to promote the social and economic welfare of society • Laws of a society reflect the norms, values, aims, and general beliefs of a society

The International Court of Justice (The World Court) • There are three scenarios under which disputes could arise: • Between two countries • Between a country and a company • Between two companies • The International Court of Justice can adjudicate disputes between two countries only when both governments involved agree to submit to the authority of the International Court of Justice

Fig 4-2: Sources of International Law International Treaties General Principles Of Law International Law International Customs Judicial Decisions and Teachings

Essential Elements of International Custom • Concordant Practice by a number of States regarding the type of situation falling within the domain of international relations • Continuation and Repetition of the practice over a considerable period of time • Conception that the practice is consistent with prevailing international law • General acceptance in the practice by other States

International Treaty An international treaty is an international agreement concluded between states in written form and governed by international law Bilateral treaty: only two states are the contracting parties Multilateral treaty: more than two states are contracting parties

Commercial Treaties National Treatment • National treatment is a principle in customary international law vital to many treaty regimes. • Under national treatment, if a state grants a particular right, benefit or privilege to its own citizens, it must also grant those advantages to the citizens of other states while they are in that country. In the context of international agreements, a state must provide equal treatment to those citizens of other states that are participating in the agreement.

Commercial Treaties Most-Favored-Nation (MFN) Treatment • is a status awarded by one nation to another in international trade. • It means that the receiving nation will be granted all trade advantages - such as low tariffs - that any other nation also receives. In effect, having MFN status means that one's nation will not be treated worse than anyone else's nation • Together with the principle of national treatments, MFN is one of the cornerstones of WTO trade law.

The 2002 Madrid Protocol: Implications for U.S. Firms Registering International Trademarks • (Madrid Protocol) is an international treaty that allows a trademark owner to seek registration in any of the countries that have joined the Madrid Protocol by filing a single application, called an "international application."

Table 4-1: The 2002 Madrid Protocol: Implications for U.S. Firms Registering International Trademarks

Losses from Piracy of Intellectual Property • The international company • loses sales in the copycat country itself as it is forced to compete against pirated products • loses sales in third countries where it has to compete against exported pirated products • suffers in its reputation as a producer of quality products and services because pirated products of inferior quality are often sold under the company’s brand name • may be prevented entry in a foreign market because a company in the foreign market may have established a dominant market share using the international company’s pirated technology or trademark

Agriculture Competition Consumer Protection Education and Training Environmental Protection Food Safety Fraud Internet Marketing Public Health Research and Innovation Taxation Categories of Laws within the EU

Origin of Commercial or Corporate Legal Codes • English common law • Civil law • Socialist law, based on Communist principles • Islamic law

Table 4-2: Vacation Policies Around the Globe (selected) • FRANCE • Two and one-half days of paid holidays per full month of service during the year • GERMANY • Eighteen working days per year after six months of service • HONG KONG • Seven days annual paid leave on completion of 12 months of continuous service with the same employer • SAUDI ARABIA • Fifteen days of annual leave on completion of 12 months of continuous service with the same employer

Table 4-2 (contd.) • ITALY • Varies according to length of service but usually between four and six weeks • MALAYSIA • Varies according to length of service but usually between eight and 16 days • UNITED STATES • Varies according to length of service and job function but usually between five and 15 days • UNITED KINGDOM • No statutory requirement. Most members of salaried staff receive approximately five weeks paid annual leave

FCPA: Elements of an Offense Who • The FCPA applies to any individual firm, officer, director, employee, or agent of the firm and any stockholder acting on behalf of the firm Corrupt Intent • The person making or authorizing the payment must have a corrupt intent, and the payment must be intended to induce the recipient to misuse his official position in order wrongfully to direct business to the payer Payment • The FCPA prohibits paying, offering, promising to pay (or authorizing to pay or offer) money or anything of value Recipient • The prohibition extends only to corrupt payments to a foreign official, a foreign political party or party official, or any candidate for foreign political office Business Purpose Test • The FCPA prohibits payment made in order to assist the firm in obtaining, or retaining business for or with, or directing business to, any person

Table 4-3: Signatories to the OECD Convention

Key Terms and Concepts • International law • International customs • International treaties and conventions • Intellectual property rights • The Madrid Protocol • Common law • Civil law • Islamic law • Foreign Corrupt Practices Act

International Management